Blow out quarter in Macau vs. low hold in LVS. The bulls will win this debate. 



LVS posted a huge quarter in Macau, beating our EBITDA projections which were already well above the Street.  The only "incremental" negative was an extremely low hold percentage in Las Vegas.  I use the term incremental because we still have issues with Las Vegas and are not so optimistic about 2010 as LVS management seemed on their conference call.  However, Macau will and should dominate the discussion and, until the massive table supply kicks in, near-term momentum remains.  Over $500 million in annual cost savings is not too shabby either.


Since consensus was only $133 million, the Street was probably surprised by the $150 million in EBITDA generated at the Venetian Macau during the quarter.  We were not - we projected $147 million - but Sands Macau did surprise us, beating our estimate of $65 million by $13 million.  Fixed cost reduction remains a story at both properties. By our math, Venetian Macau reduced fixed expenses by $16 million year over year and are on an annual run rate of $300 million in total fixed expenses at the property.  At Sands Macau, we estimate that fixed costs declined a whopping 57% and drove most of the variance from our EBITDA estimate.


In Las Vegas, EBITDA was a paltry $34 million.  We estimate the number should've been $65-70 million if not for a horrendously low table hold percentage of 12.2% - but still below our $75 million estimate.  Management was very excited about the group segment where there is more business on the books for 2010 already than was recorded for all of 2009.  This is a big positive but the enthusiasm must be tempered somewhat.  LVS is going off of a very easy comparison into the seasonally strongest convention quarter of the year with 3k more hotel rooms (Palazzo).  We are very encouraged by the cost cutting - 18% or $40 million y-o-y per our estimate.  Q4 EBITDA could surprise on the upside.


LVS looks to be in good shape for the remainder of the year and incremental catalysts are positive.  Just make sure to check your share counts.  When profitability returns in Q4, fully diluted shares should total around 815 million shares and not the 660 million shares recorded in the Q3 per share loss calculation.  Much of the sell side doesn't seem to have this right.

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